Archive for December, 2013

McDonald’s smells the coffee: Limited expectations are here to stay

Friday, December 27th, 2013

Fill 'er up: Customer using self-service coffee maker at 7-11.

Fill ‘er up: Customer using self-service coffee maker at 7-11.

If the central point of Abenomics is to boost prices and thus wages and consumption — the old “raise all boats” metaphor — then to a certain extent the plan has succeeded over the last year. Consumers don’t seem to be fixated on cheap goods and services any more, though, to be honest, it’s difficult to tell if this willingness to spend more is a function of anticipation for April’s consumption tax hike. But for the time being there seems to be that old desire for high quality stuff, regardless of how much it costs; which isn’t to say consumers aren’t looking for cheap things, only that they aren’t making it a priority any more.

This paradox seems to have had a bad effect on the fortunes of a company that some once thought was invincible: McDonald’s. Since August, the fast food behemoth’s Japanese operation has had to lower its sales projection for fiscal 2013 twice. Profits are expected to be around ¥5 billion, or a whopping ¥6.7 billion lower than originally thought. Sales have decreased five months in row, with the number of customers dropping for 7 consecutive months. The company is telling the media that the reason is “no hit product” this year, thus making it sound like a PR failure, but according to Asahi Shimbun, and almost every other Japanese media that has reported the story, McDonalds’ poor showing seems to be more systemic, an indication of a sea change in consumer sentiment.

The company’s response has been to bring in new blood. Sarah Casanova, a Canadian, was appointed president of McDonald’s Japan last summer, and, again, it seems to be more a matter of an image makeover. The announced new strategy is to target women as a demographic, since it is younger females who have tended to resist McD’s charms the most during its two straight years of falling revenues. The plan reinforces “healthy menu” items, which to a company like McDonald’s means offering more things with chicken in them.

Though it doesn’t sound like much, it’s actually quite a turnaround. When the previous president, Eiko Harada, was appointed in 2004 his big move was pushing the so-called ¥100 Mac, the cheap hamburger that was always going to be McDonald’s mainstay, and it worked. For the next six years profits grew.

The next big coup was ¥100 coffee, which effectively challenged coffee shops and coffee chains like Starbucks. Then the company made over their restaurants with more attractive decor. These various gambits were predicated on boosting the brand, but actually it was the price and the speed of service that mattered to customers. People buy McDonald’s hamburgers not because of the taste or the atmosphere, but because they’re cheap, and the same went for the coffee, which was pretty good considering but not as good as Starbucks, for what it’s worth.

To make matters worse, McDonald’s raised prices in the past year, thinking that the economy justified the change, and in a way it did, but people don’t think that way about McDonald’s. They aren’t willing to pay more for fast food, no matter how well it’s presented or how nice the decor is.

In the era of Abenomics, that means any competition can eat into McDonald’s sales more easily. Just as McD stole customers away from Starbucks when it launched its ¥100 coffee, now convenience stores are taking business away from McD with their own cheap coffee. About a year ago 7-11 put self-service coffee machines, which grind beans and brew coffee while you wait, in 16,000 stores, and by September they had sold 200 million cups. It only costs ¥100, and other CS have followed suit, though Lawson’s coffee is a bit more expensive at ¥150.

The market has grown so much that the consumer report magazine Nikkei Trendy named convenience store coffee the #1 hitto shohin (hit merchandise) of the year. It should be noted that Japan is a formidable coffee market, number 4 in the world in terms of consumption — 50 percent more than green tea, in fact. Even sushi restaurants are now serving fresh coffee. More significantly, 7-11 reports that its new coffee service does not subtract from other in-store coffee-related sales, such as canned coffee or chilled pack coffees. It’s simply gravy.

But someone has to lose in this equation, and it seems to be McDonald’s, which has a lot to lose. After all, ¥260 billion, which is McD’s projected revenue this year, is still a great deal of money. The problem is that McD is associated with hamburgers, whose traction on the Japanese imagination has always been tentative. Older people don’t really eat them as much, and Japan, as everyone knows, is the fastest aging society in the world.

Also, the tendency to eat out is becoming weaker in Japan as the population ages. Restaurant sales have decreased by 20 percent since they peaked in 1997. The weekly magazine Gendai, in typical hyperbolic fashion, has predicted the end of McDonald’s in Japan after reporting that the company will have closed 160 outlets by the end of this fiscal year.

Rental video stores ponder their reason for existing

Sunday, December 22nd, 2013

Many happy returns: Prepaid mailer for Rakuten DVDs

Many happy returns: Prepaid mailer for Rakuten DVDs

It’s coming up to that time of year again, the long post-Christmas New Years break when days not spent in the company of relatives you can’t stand are wiled away in front of the television airing programs you can’t stand even more. Traditionally, that makes it one of the biggest seasons for the rental video business; or, at least, it used to. The industry has been in a progressive slump since it peaked more than a decade ago.

According to industry group Japan Video Software Association, the number of stores in Japan peaked in 1990, when it stood at 13,529. In 2012 there were only 3,648, a drop of three-fourths. In terms of revenues the biggest year for rental videos was 2004, when the industry took in ¥258.4 billion. It has decreased by about ¥100 billion since then.

A recent article in the Mainichi Shimbun quoted a 41-year-old owner of a rental video store in Yokohama who said that he used to run two other shops but had to close both. There’s not enough demand for him to be able to afford all the new movies coming out on DVD or Blu-Ray, and it’s new titles that have driven rentals in the past. He remembers the days when he could charge ¥1,000 for a new movie for two days, but since then prices have dropped drastically, mainly due to competition from major national chains.

The main culprit, of course, is the march of technology. Though on-demand streaming and downloading isn’t as widespread in Japan as it is in the U.S., the big three mobile phone carriers have started offering movies that can be streamed on TV sets at home. The number of titles right now is only about 7,000, but even at ¥500 per title, it beats trudging down to the local rental store, if one actually exists within trudging distance.

The problem with on-demand is that accessing such services requires a certain level of computer literacy that tends to decline the older the customer is. This is always a problem for IT service companies but may be the last bastion of revenue for rental video stores. An editor from the industry magazine Video Insider Japan told Mainichi that the strategy from now on will be for video stores to target “customers in their 60s and 70s.”

But only the major chains can afford to do that, apparently. Between them, Tsutaya and GEO account for 70 percent of all the rental video stores in Japan, and because they can afford to buy as many new titles as they want, they price smaller stores out of business. Tsutaya, however, is a franchise operation, and individual owners may find it harder to compete against GEO outlets, which are company owned. Since Tsutaya franchise owners can set their own prices, some are being forced to match GEO’s in order to compete, while others are keeping prices higher. It all depends on location. Also, Tsutaya has made exclusive deals with some distributors that give them a distinct advantage. For a time, they were the only company that had permission to rent out “The Amazing Spider-Man.”

However, in order to attract this older cohort that is now the main demographic for rental videos, chain stores have to go to them rather than the other way around. Both Tsutaya and GEO offer plans wherein customers pay a set monthly fee for a certain number of disks that are delivered directly to their homes. This system has been available for about 10 years, and the only real innovative change has been the addition of so-called spot rentals, meaning members can order videos a la carte without having to sign up for a plan. Right now, GEO is offering some titles for as low as ¥80, with Tsutaya offering ¥100 (both for limited times). What’s interesting about spot rentals is that, depending on which videos you rent and how many, they can be cheaper than monthly plans.

GEO has three monthly plans. The standard plan is ¥945 for four DVDs. After that there’s an 8-disc plan for a little less than ¥2,000, and a 16-disc plan for a bit less than ¥4,000. When you sign up for a plan you get the first month free, but the real difference is in the delivery fee. Whether your order is a spot rental or part of a monthly plan, the fee is ¥300 for up to seven discs at a time. The fee is ¥500 for orders of 8-16 disks. Regardless of the size of the order, the time limit is 10 days from the day the customer receives the disks. As with all such home delivery systems, the company includes a prepaid envelope for returning the discs. However, it’s important to note that GEO does not charge a late fee for people who belong to monthly plans. Late fees for spot rentals are ¥157 a day.

But GEO and Tsutaya now have to contend with an upstart: Rakuten. The Internet mall’s inventory isn’t as deep or wide as the other two companies, but its spot rental system is in many ways cheaper and more amenable to the way most people rent videos. Rakuten also charges ¥300 for delivery fee, but you can only request up to two discs per order. After that the delivery fee increases in increments of ¥200. In that regard, GEO would seem to have the advantage, but actually not. Brand new titles are priced the same as GEO’s, around ¥300, but older titles are usually priced at around ¥50. And titles that are more than, say, two years old can be as cheap as ¥10 or even ¥5.

Like GEO, the time limit for a Rakuten spot rental is 10 days, but if you see two discs over the course of two days you return the discs and can immediately order two more. They usually arrive within a day of placing the order. For sure, the delivery fee for GEO is cheaper, but if you took full advantage of the fee and ordered 7 discs, you’d still have to watch all of them in less than 10 days, and even at ¥80 per disc, they aren’t as cheap as Rakuten’s.

Rakuten’s system is especially rational if you want to watch full seasons of TV series. Last month we watched the second season of “Homeland,” which, because it’s relatively new, cost ¥280 per disc, with two episodes per DVD. But we also went through the first two seasons of “Mad Men,” which were only ¥5-¥10 per disc, also with 2-3 episodes per disc. And they always had the DVDs we wanted in stock. It beats trudging down to the rental video store.

Don’t throw those boring New Years cards away!

Monday, December 16th, 2013

Betting on the horse: Japan Post presents its New Years postcard selection on its home page.

Betting on the horse: Japan Post presents its New Years postcard selection on its home page.

As promised two posts ago, we’re now going to explain the prizes attached to New Years cards. We pointed out in that article that the custom of sending nengajo (New Years greetings) or nenga-hagaki (New Years postcards) has been declining in recent years, a development that concerns JP because it’s always derived a good part of its revenue from the custom. Last year, JP sold 3.27 billion cards, which sounds like a lot, but represents a 20 percent drop since sales peaked in 1999.

Many years ago they started a lottery contest. Each card has a number printed on it, and sometime in the middle of January, JP conducts a drawing for winning numbers. However, the people who buy the cards and send them are not the same people who receive them and thus have the chance to win prizes, so the lottery incentive for buying cards escapes us, unless you assume that the more cards you send the more you are likely to receive, but that sort of cause-and-effect logic wouldn’t actually kick in until the following year, right?

According to NHK, the idea of combining nengajo with a lottery started in 1949, when the price of a postcard was ¥2 yen. In the years right after the war, the exchange of nenga-hagaki took on special meaning, since it was a good way to inform friends and relatives that you were still alive and where you were. The lottery, which is called otoshidama, the term for New Years gifts of cash given to children, made it even more appealing, because so many people had nothing at the time, so the prizes were for the most part practical: sewing machines, skeins of wool, bolts of fabric. As Japanese society became more affluent, the prizes became more aspirational: TV sets and other high-end home appliances, or coupons for international or domestic travel.

In the Jan. 6, 2010 issue of the weekly magazine Bunshun there is an article about the prizes. That year the grand prize was a 32-inch high-definition flat screen TV. The article goes on to explain the keihin hyoji-ho, or “incentive indication law,” which states that a company which offers prizes as an incentive to boost sales cannot offer prizes whose value is more than 20 times the price of the merchandise or service that is sold, so, theoretically, if a postcard costs ¥50, then the most you could win is something worth ¥1,000. But, in fact, JP got a special dispensation, since a different law was passed specifically for nengajo, and that law says you can offer prices worth up to 5,000 times the price of the lottery ticket.

Another condition of the special law is that if the card is received by a company rather than an individual, and that card is a winner, the person who claims the prize must present proof that he or she is an employee of the company. Another condition is that the prizes must be claimed within six months of the drawing (it’s up to one year for conventional Takarakuji lotteries, which are sold as lottery tickets so the incentive law doesn’t apply).

However, there’s another difference between Takarakuji and nengajo lotteries that’s more fundamental to this discussion. Takarakuji publicizes the rate of winning numbers that are claimed, but JP doesn’t. Bunshun interviewed an expert who conjectures that Takarakuji prizes are cash, while JP prizes are goods. If all the cash available for prizes isn’t won in a given year, Takarakuji just keeps the money and adds it to next year’s jackpot, but what can JP do with unclaimed goods? People aren’t going to be interested in last year’s model TV, and the lesser prizes, like travel coupons, usually come with a time period in which they have to be redeemed. Another prize is sheets of stamps, which are deemed legal tender, but for some reason they are destroyed if not won in the lottery.

The impression one gets from the article is that a fair number of nengajo prizes are not claimed every year, mainly because people don’t really care, and one reason they don’t care is that it’s inconvenient. In order to check the numbers, the receiver has to read the right newspaper on the right day or go to the nearest post office, and most people can’t be bothered. Now, of course, JP publicizes the winning numbers on the Internet, but even that may not be enough, so this year instead of prizes, JP is offering cash, thus making it more like otoshidama.

It’s not a lot of cash, though. The top prize is only ¥10,000. The incentive is that the odds are more in the public’s favor. In the past, when the top prize was an expensive appliance, the odds of winning were one in a million. But this year there are 33,936 first prize winning cards, which means the odds of getting one is one in 100,000. There are also 339,365 furusato prizes (“home town” prizes, meaning products associated with specific regions in Japan), so the odds of winning one of those is one in 10,000. And the other prize is, again, sheets of stamps. The odds of winning those is one in fifty.

JP will announce the winning numbers on Jan. 19.

For customers of Japan’s biggest bank, it’s about to become harder to avoid fees

Tuesday, December 10th, 2013

Mickey Mouse club: passbook and Direct card for MUFG account holders

Mickey Mouse club: passbook and Direct card for MUFG account holders

Tokyo Mitsubishi UFJ Bank (MUFG) is Japan’s largest bank in terms of number of branches, but there are none within the borders of the city where we live, which is only an hour by train from Nihonbashi, Tokyo. Since all of our freelance work is paid through the MUFG account we set up in the Aoyama branch years ago, this could be a problem, but MUFG offers online banking services and there are plenty of convenience stores with ATMs within walking distance of our apartment in case we need cash.

But that’s going to change on Dec. 20, when MUFG’s new ATM policy goes into effect. For people who live near a branch of the bank, the changes are a good thing. At present, account holders can withdraw money from MUFG ATMs without having to pay a handling fee if they do so between 8:45 a.m. and 6 p.m. on weekdays. At all other times they have to pay an extra ¥105. Starting December 20, the time for free withdrawals is extended to 9 p.m., and that includes weekends and holidays, which will also be free from now on. The ¥105 fee is still in effect from 9 p.m. to 8:45 a.m.

Things are different, however, for convenience store ATMs. Presently, account holders for certain banks can use CS ATMs for free during the day on weekdays. For MUFG customers it’s the same as it is for bank AMTs — no fee between 8:45 a.m. and 6 p.m. But starting December 20, a ¥105 fee will be charged for withdrawals from CS ATMs between 8:45 and 6, and a ¥210 fee for withdrawals at other hours. So that means we can’t avoid paying a fee if we need cash quickly.

But there are ways to circumvent the fees if you’re an MUFG customer, it’s just that they’re not that easy to understand, so we’ll try to make it simple.

In principle, customers who have accounts called Super Futsu Yokin (Main Bank Plus) can withdraw cash from ATMs for free, though it depends on your “stage” and the type of ATM.

White stage: At the end of the month, if your account balance is at least ¥100,000 you can withdraw cash from an MUFG bank ATM for free any time, even in the middle of the night. This also applies to account holders who have an MUFG-issued credit card, in which case a minimum balance is not required. This no-fee condition is effective from the 20th of the following month until the 19th of the month after that.

Silver stage: At the end of the month, if your account balance is at least ¥300,000, or if you receive your salary in your account and your salary is at least ¥100,000 a month, then you can withdraw cash from bank ATMs anytime for free and up to three times during the following month from CS ATMs for free any time. Again, the month is counted as starting from the next 20th to the following 19th. Note that “salary” has to be transferred as such (kyūryō) and printed in your passbook.

Platinum stage: At the end of the month, if your account balance is at least ¥5 million, or if you have taken out a housing loan with MUFG and the balance is more than ¥5 million, there are no fees anywhere for anything. You can also make up to three money transfers (usually ¥315) in a month’s time for free.

One more catch: To qualify for any of these deals you have to register your account for MUFG Direct, which is MUFG’s internet banking service. Good luck.

Postal employees carry extra burden during the holiday season

Thursday, December 5th, 2013

Until around 2000, the custom of sending nengajo, or New Years greetings, to friends, family and business associates was widespread in Japan, but since then it has become less so. According to Japan Post, mail carriers delivered 3.7 billion New Years cards in 1999. That number dropped to 2.6 billion in 2012. More significantly for JP, which is in the process of being privatized, the organization sold 4.2 billion cards in 1999 and 3.3 billion in 2012.

Hard sell: New Years postcard display in Kyobashi post office

Hard sell: New Years postcard display in Kyobashi post office

The 22 percent drop in sales shows how much business JP has lost over the last 13 years, since nengajo account for 10 percent of JP’s total postal-related business. In fact, JP depends on sales of New Years cards to make up for the loss in other areas. But look at that other statistic, the one showing how many cards were actually sold, and a question has to arise in your mind: Why is there such a huge gap between the number of nengajo sold and the number delivered? What happened to the 700 million cards that were sold but not delivered in 2012?

It’s a question Asahi Shimbun attempted to answer in a recent article about the practice known as jibaku eigyo (suicide bomber sales), which many employees of Japan Post resort to at this time of year. One of the reasons sales of New Years postcards (nenga-hagaki) is so high is that almost all employees of the postal service sell them. They have quotas, and while there are no written stipulations that require employees to meet their numbers, it’s tacitly understood that their future in the company is jeopardized if they don’t.

Many employees sell cards they can’t otherwise sell to kinken resellers, those storefront operations that buy things like railway tickets and store coupons and then resell them at prices slightly below their face value.

For years postal employees have dumped their remaining postcards at kinken shops rather than return them to their supervisors. And since they receive less than the ¥50 face value for each card, the employees lose money, because they don’t earn commissions from the cards. They have to return to JP ¥50 for each card they sell.

JP frowns on the practice, not because it’s illegal, but because it looks bad, especially since JP plans to become a listed company sometime in the near future. A public relations person told the Asahi that the company is “aware” that many employees sell their unsold postcards to resellers, as well as through Internet auction sites, and have deemed such practices “improper.”

This year they plan to crack down on these practices, which shouldn’t be too hard. Every nenga-hagaki has a lottery number printed on it. After New Years JP conducts a drawing and people who have received postcards with winning numbers can redeem them for prizes (a custom that will be covered in a future Yen for Living post). All a supervisor has to do is record the lot numbers of the postcards he or she assigns to an employee. If any of those cards end up in kinken shops, JP will know who sold them.

Some employees end up spending even more money trying to confound this countermeasure. Asahi talked to one non-regular mail carrier from Central Japan who traveled all the way to Tokyo with more than 3,000 cards to sell them to a kinken shop in the capital, because he thinks the chances of him getting caught will be less. Also, kinken shops in Tokyo pay more for nenga-hagaki than shops in the Chubu region. Still, even after he sells them he stands to lose ¥40,000 on the deal, and that doesn’t even count the cost of his train ticket. A Nagasaki-based employee sent 4,000 cards via express package delivery to a kinken shop in Hokkaido, thinking it was far enough away to be safe.

The size of the quota depends on the job description of the worker: Quotas are higher for regular employees than they are for non-regular and part-time employees, but since non-regular salaries are so much lower than those of regulars, the burden may be greater. Since they are employed on a semi-annual contract basis, many non-regulars believe that their contracts won’t be renewed if they fail to meet their quotas.

Supervisors have higher quotas than their subordinates, but supervisors are usually older employees who already have a solid base of established customers, which are mostly friends and relatives anyway. Also, supervisors have time to carry out sales activities in front of their offices or in public places during normal work hours. Mail carriers are always making deliveries, so they have to sell their cards on their own time. Some quotas seem ridiculously difficult to fulfill.

According to an internal document that Asahi got ahold of, each regular mail carrier in Saitama City is required to sell 7,000 cards a season, which starts on Nov. 1 with a media blitz. The section chief in a Western Japan branch has to sell 13,500. For non-regulars, the burden is anywhere from 1,000 to 5,000 cards, usually depending on their respective branches’ sales figures in the past. Employees told Asahi of how they were browbeaten by supervisors to sell more cards, with one saying that he was accused by his boss of “robbing JP” because he hadn’t sold enough. Japan Post has said that employees should report supervisors who exert “unfair pressure” on them to sell cards, but it seems no one has done so.

Some quit, while many others simply dump the unsold cards in their closets and absorb the loss, which is why the holidays are anything but happy for postal employees. In any case, nobody the Asahi talked to said they sold all of their cards. When the reporter asked an officer of one of the labor unions that represent postal workers if the union isn’t doing anything to counteract the quota system, he replied somewhat bizarrely that JP has to maintain sales in order to survive.

Though sales quotas have always been part of postal employees’ jobs, they used to be fairly low and manageable. But since JP’s privatization bid the quotas have skyrocketed, mainly because people aren’t sending as many cards as they used to.

In a survey conducted by Internet news service J-cast, only 58 percent of respondents said they planned to send out nengajo this year, with 19 percent saying they would send more than a hundred cards, 22 percent sending out 50-100 cards, and 36 percent sending out less than 50. Twenty percent said they had no plans to send cards at all this year.

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